2023 saw some significant changes to tax rules and regulations that will affect Canadians in 2024 and beyond. From adjusted federal tax brackets to CPP enhancements and CRA interest rate hikes, staying up-to-date is crucial when navigating the complex world of tax obligations. Keep reading as we discuss the major changes taxpayers should be aware of when filing in 2024.
Adjusted Federal Tax Brackets
The cost of living here in Canada continued its upward trajectory in 2023. Between high levels of inflation, dramatic mortgage rate hikes and widespread surge pricing, Canadians all across the country felt the strain.
To help accommodate for this increased financial burden, the government has adjusted tax brackets by 4.7% in line with inflation. The federal tax brackets for the 2023 tax year are now as follows:
- $0 – $53,359: Taxed at 15%
- $53,359 – $106,717: Taxed at 20.5%
- $106,717 – $165,430: Taxed at 26%
- $165,430 – $235,675: Taxed at 29%
- $235,675 and above: Taxed at 33%
Increase to the BPA
The basic personal amount (BPA) has been increasing under government legislation since 2020. As of 2023, the government has hit its target BPA amount of $15,000. For subsequent years, BPA increases will be indexed to inflation.
TFSA, RRSP and FHSA Contribution Limits
Registered savings plans are some of the best tools Canadians can use to save money and build future wealth. To utilize them effectively, you need to understand how they work and how much contribution room you have available in any given year. The fines for over-contribution can be steep, so be sure to stay organized and keep up-to-date with annual limits.
RRSP – Contributions made to your Registered Retirement Savings Plan are tax-deductible, making them a great way to lower your overall tax burden. The RRSP deduction limit refers to the maximum contribution an individual can deduct on their tax return. Your deduction limit for a given year is 18% of your income from the previous tax year, up to a maximum limit set by the CRA. For the 2023 tax year, this limit is $30,780.
TFSA – Tax Free Savings Accounts may not offer the same tax deferral benefits as RRSPs, but they do provide greater flexibility and are a powerful tool for growing wealth. Investment earnings within a TFSA are not taxed, meaning withdrawals are entirely tax-free. For 2024, the TFSA contribution limit has increased to $7,000 for the year. This means that Canadian residents who were at least 18 years of age in 2009 (when the TSFA program began in Canada) now have a cumulative lifetime TSFA contribution limit of $95,000.
FHSA – First Home Savings Accounts were introduced in Canada in April 2023. They combine the best features of RRSPs and TFSAs, making them an attractive option for potential first-time home buyers. Contributions to an FHSA can be deducted against your taxable income, and withdrawals are tax-free when used towards a qualifying home purchase. Your annual FHSA contribution limit is $8,000, up to a maximum of $40,000, with any unused contribution room carrying forward.
Canada Pension Plan Enhancement
Since 2019, the Canada Pension Plan (CPP) has undergone a gradual enhancement to incrementally increase the base contribution rate from 4.95% to 5.95%. For 2024, the rate will remain unchanged at 5.95%, with the maximum annual pensionable earnings ceiling rising to $68,500.
On January 1, 2024, we entered the second phase of the CPP enhancement with the introduction of an additional maximum pensionable earnings ceiling. Employers and employees are now required to make a second CPP contribution (CPP2) on earnings that fall between the two ceilings. For 2024, this will mean that income between $68,500 and $73,200 will be subject to employer and employee CPP2 contributions at a rate of 4%, up to a maximum of $188.00 each.
Employment Insurance (EI) Premium Rates
The Canada Employment Insurance Commission (CEIC) has announced that the EI premium rate for 2024 will be $1.66 for workers (up from $1.63) and $2.32 for employers (up from $2.28) per every $100 of earnings. The maximum insurable earnings will increase to $63,200, with a maximum annual employee premium of $1,049.12 and a maximum annual employer premium of $1,468.77.
CRA Interest Rate Hike
The Canada Revenue Agency (CRA) is increasing the prescribed annual interest rates for various tax-related matters by 1% in 2024. This means that the interest rate charged on overdue taxes, including late installments, will now be 10%. Given this increase, it’s now more important than ever to ensure payments are made in an organized and timely manner to avoid steep interest charges.
Other Notable Canadian Tax Changes for 2024
- COVID-19 credits and deductions have now expired, including the Canada Worker Lockdown Benefit (CWLB), the COVID work-from-home expense deduction and the Ontario Staycation Tax Credit
- With transitional relief extended for a second time at the end of 2023, affected owners now have until April 30, 2024, to file their Underused Housing Tax (UHT) returns and pay the tax for the 2022 calendar year without being charged penalties or interest
- The Canadian Dental Care Plan (CDCP) will be rolled out in stages in 2024 to provide dental coverage for uninsured Canadians with an adjusted family net income of less than $90,000
- Professional services rendered by psychotherapists and counselling therapists are set to become exempt from GST/HST, as are feminine hygiene products
- The excise duty rates for alcohol products will increase by 2% in 2024
- The flat-rate method for calculating home office expenses is no longer available
Final Thoughts
Tax season can be a stressful time for many Canadians. With constant changes to tax rules and regulations, it can be easy to make mistakes or miss opportunities to lower your overall tax burden. This article provides a useful resource for Canadians looking to stay on top of the evolving tax situation and get the most out of their taxes in 2024.
For a deeper dive into new and upcoming legislative and regulatory changes, including the new trust reporting rules, updates to the alternative minimum tax and the elimination of short-term rental deductions, stay tuned for Part Two.
This article was written by the NVS Professional Corporation team, your knowledgeable Barrie and Markham accountants.
